Factors of Determining Life Insurance Coverage

When buying life insurance, how do you know how much is enough?

There is no definitive simple answer to this question.

This is determined by several factors depending on who you talk to and how you analyze your estimated needs.

Financial planners generally agree you need enough insurance to replace at least give to seven years of your salary. However, if you have young dependents and/or carry heavy debt, your coverage should cover ten or more years of your salary. For example, if you are currently making $50,000 per year, you should carry at least $250,000 to $500,000 worth of coverage, if not more.

The main purpose of life insurance is to replace your income in case you pass away, so the lifestyle of your dependents isn't adversely affected.

Some factors to consider when determining your coverage needs:

  1. Will the surviving partner have child care expenses?
  2. Do you have other assets to draw from?
  3. Will your children be out of the nest soon?
  4. Do you currently have a mortgage and other major reoccurring expenses?

These, along with several other factors, will help determine on the amount of coverage you need.

Buying insurance is about covering your dependents, so don’t buy less coverage simply based on initial costs.